Can Nutmeg crack the financial services industry?

Nick Hungerford, CEO of Nutmeg

Last week we caught up with Nick Hungerford, CEO of the new client investment management company Nutmeg.  We think this is a business with the potential to really disrupt the investment market for a number of reasons. Firstly it is positioned perfectly to take advantage of the Retail Distribution Review (RDR), coming into force in 2013, which will make investors much wiser about the fees they are actually paying their advisors. Nutmeg offers a combination of total transparency and low fees thanks to its strategy of investing in the burgeoning Exchange Traded Funds (ETF) market.  Nutmeg has also tapped into the online banking and social media trends – offering a slick user interface and backed by investors that include Tim Draper and Spotify board member Klaus Hommels.

It was only a matter of time for social media technologies to start disrupting the financial services market and we’ve written about some of our predictions before.  We’ve seen interesting companies like Friendsurance using a peer-to-peer model  – combining social networks with insurance services – to lower premiums and Polish bank Alior Sync enabling customers to make financial payments through Facebook.

Q: What was the inspiration for starting Nutmeg?

A:  I’d been working in Financial Services for 7-8 years and I always found it remarkable that even though finance and investment is applicable to everyone regardless of wealth, private banks only deal with the extremely wealthy. Friends/family would ask me for help with investments but I would have to turn them down.  At that point I started talking to investors/smart people working in tech industries. They all said the same thing, “I want to invest online, I want a smart solution and I don’t want to pay someone too much.” At that point it became obvious there was an opportunity to disrupt the financial services industry.

Q:  Do you see a threat from other trusted consumer brands diversifying into this kind of financial service?

A:   It takes you into an entirely new regulatory arena. People often ask me, “Why wouldn’t Google or Facebook do this” but it requires a massive change to their business culture. If they start managing money they have to take on financial professionals. Becoming an investment manager is a totally different ball game. Having said that, we do want there to be more people like us, driving change in the industry.

H:  How do you encourage people to take that first step to invest and put something away for a rainy day?

There is an education curve. Nutmeg is a site you come to learn about investing, money and how to save. Then, when you are ready, you can choose to invest. We are starting with those people who are used to internet banking/investing, are familiar to other online services out there and like the user experience. Perhaps they’ve had an account with a broker but don’t want to spend so much on fees anymore.  I like the analogy of internet banking – at first it was daunting to use that service but now I never go in branch at all and I’m not alone – Britain has one of the highest adoption rates in the world for internet banking and I’m sure we’ll get there for saving and investing. We only need a fraction of the market to be a giant company.

Q:  Your educational content is key to your growth, what’s on the roadmap?

A:  We know that people care most about important financial decisions, like buying a house or car. We want to inform people of what and why we are investing in things, give them a clear monthly update in a non-obnoxious, easy to understand way so they know where their money is and how it’s doing.

Q:  You are currently investing in ETFs, could you explain that a little more to the uninitiated?

A: It’s a collection of investments that track an exchange, index or sector – so you buy a little bit of lots of different things in order to get diversification.  They are also low cost and 30 years of research proves 75% of active funds (or thereabouts) underperform and not just because of the fees. It’s very obvious that trackers and low cost funds are an increasingly attractive way to go.

Q:  Nutmeg is using social media in innovative ways to drive recommendations (offering fee discounts in return for social recommendations). How else will Nutmeg use social media to become a social business?

A:  We are looking at the sharing of ambitions and goals with friends and family and allowing for social investment.  So what if a group of friends wanted to pool their money into a fund that pays for them all to all go on holiday every year? From our perspective social media is about how we get people engaged around their money.  Nutmeg is the first to do what we do and we have a great chance to change things in the industry for the better.